EXHIBIT 10.1
[LETTERHEAD OF ICOS CORPORATION]
June 11, 1999
Xx. Xxxx X. Xxxxx
000 Xxxxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Dear Xxxx:
On behalf of ICOS Corporation (the "Company"), I am very pleased to extend
to you an offer to join the Company as President and Chief Executive Officer.
Subject to your agreement, evidenced by countersigning this letter, this letter
agreement (this "Agreement") sets forth the terms and conditions of your
employment by the Company:
1. Position
(a) You ("Executive") shall be the President and Chief Executive Officer
of the Company. In this position, Executive shall have overall charge and
responsibility for the business and affairs of the Company. Executive will
report to the Board of Directors of the Company (the "Board"). Executive will
also be elected a director of the Company.
(b) Executive shall devote his full business time, ability and attention
to the business of the Company and shall not engage in or perform duties for any
other person which interfere with performance of his duties hereunder. Executive
may hold board of director positions for outside civic organizations and may
spend a reasonable amount of time fulfilling the duties of those positions so
long as there is not interference with the performance of Executive's duties
hereunder. Service on a board of directors for a commercial entity will be
subject to prior approval by the Board.
June 11, 1999
Page 2
2. Term
Executive shall commence employment with the Company on June 16, 1999. The
term of this Agreement shall be five (5) years from commencement of Executive's
employment, with a daily three-year "evergreen" feature effective on the second
anniversary, so that the remaining term will always be at least three (3) years,
subject to either party being able, by written notice, to stop further operation
of this evergreen feature.
3. Annual Salary
Executive's annual salary shall be $500,000 as compensation for services
hereunder (including services as a member of the Board), subject to increase
thereafter at the sole discretion of the Board.
4. Cash Bonuses
When the Company begins paying annual cash bonuses, Executive shall be
eligible to receive cash bonuses consistent with competitive pay practices
generally and with bonuses paid to other senior executives of the Company.
5. Equity-Based Incentive Compensation
(a) Upon commencement of employment, Executive will be granted a ten-year
stock option under the Company's 1999 Stock Option Plan (the "Plan") to purchase
1,500,000 shares of the Company's common stock, which option will vest as to
25,000 shares on each of the first sixty (60) monthly anniversaries of
Executive's date of commencement of employment with the Company (the "Option").
To the extent permitted by applicable law, a portion of the Option will be
treated as an incentive stock option ("ISO") pursuant to Section 422 of the
Internal Revenue Code (the "Code"). The exercise price for the Option will be
equal to the closing price reported by Nasdaq National Market on the date
Executive countersigns this Agreement; provided, however, the exercise price
with respect to the portion of the Option that is treated as an ISO cannot be
less than the closing Nasdaq National Market price on the date of commencement
of employment, and the exercise price of the portion of the Option that is not
an ISO cannot be less than eighty-five (85%) of the closing Nasdaq National
Market price on the date of commencement of employment. In the event of
termination of Executive's employment by the Company without Cause (as defined
in Exhibit A) or by Executive for Good Reason (as defined
June 11, 1999
Page 3
in Exhibit A), the Option will fully vest and be exercisable over the next two
years, subject to early termination in accordance with Section 11.2(a) of the
Plan. When the Company or its affiliate, Lilly ICOS LLC, receives FDA approval
of an NDA, the last 300,000 shares to vest under the Option will accelerate in
vesting as of the date of approval. If such approval occurs before June 30,
2002, an additional stock option for 300,000 shares will be granted as of such
approval under the Plan or any other Company stock option plan then in effect,
such option to have an exercise price equal to the closing price on the date of
grant and to vest in equal monthly amounts over a forty-eight-month (48) period.
The Plan Administrator of the Plan will permit Executive to pay the exercise
price for the Option by surrendering other common stock of the Company in
accordance with Section 7.5(b) of the Plan and to pay any withholding taxes in
connection with the exercise of the Option by surrendering other common stock of
the Company or having the Company withhold shares issuable upon the exercise, in
accordance with Section 9 of the Plan.
(b) The Option will include a provision that, in the event the exercise
price for the Option or any taxes due on its exercise are paid by the surrender
of other common stock of the Company or, for the payment of withholding taxes,
by withholding of shares, Executive will be granted an option (a "Replacement
Option") under the Plan to purchase a number of shares of common stock of the
Company equal to the number of shares surrendered and/or withheld, provided the
then fair market value of the Company's common stock is at least twenty-five
percent (25%) higher than the exercise price of the Option. The exercise price
of the Replacement Option will be the closing Nasdaq National Market price as of
the grant date of the Replacement Option. The Replacement Option will be a
nonqualified stock option which will first be exercisable six (6) months after
the grant date, will have a term equal to the remainder of the term of the
original Option and will have such other terms as are similar to the terms used
by Xxxxxx Laboratories in its replacement options so long as not inconsistent
with the Company's Plan. An additional Replacement Option will not be granted
upon the exercise of a previously issued Replacement Option if that previously
granted Replacement Option is exercised in the same calendar year that it was
granted.
(c) Executive shall be eligible to receive future grants of stock options
pursuant to the Company's Management Incentive Program or similar stock-based
bonus program consistent with awards granted to other senior executives of the
Company.
June 11, 1999
Page 4
(d) Executive shall be eligible to receive future periodic (i.e., non-
bonus-related) grants under the Company's stock incentive programs consistent
with competitive pay practices generally and with awards made to other senior
executives of the Company.
6. Group/Fringe/Executive Benefits
Executive and his family may participate in the benefit program provided by
the Company on terms no less favorable to Executive than the terms offered to
other senior executives of the Company. Executive will accrue vacation at the
rate of four (4) weeks per year, the administration thereof (e.g., year-to-year
accumulation and benefits, if any, at termination) to be in accordance with the
policies of the Company.
7. Events Triggering Severance Benefits
Upon the termination of Executive's employment by the Company without Cause
or by the Executive for Good Reason, Executive will be entitled to receive the
severance benefits described in Item 8 below.
8. Severance Benefits
In the event of a termination of employment described in Item 7 above,
Executive will be entitled, in lieu of any other severance benefits (other than
those described elsewhere herein), to:
(a) Continuation of Executive's then current annual salary for a period of
three (3) years and payment at the end of each of such three years an amount
equal to Executive's (i) most recent annual performance cash bonus target or
(ii) if greater, most recent annual cash bonus payment. If requested by
Executive, such salary continuation and bonus payments will be paid in a lump
sum using a six percent (6%) annual discount factor. The foregoing salary
continuation and bonus payments (including lump sum) will not be paid if, at the
time of termination, the aggregate built-in gain of all vested stock options
(including options vesting as a result of termination) granted to Executive is
(or would have been, with respect to exercised options) greater than $6 million.
(b) Payment of a performance cash bonus at target for the year of
termination, prorated for the portion of the year elapsed through the date of
Executive's termination.
June 11, 1999
Page 5
(c) Payment of any benefits, in accordance with their terms, accrued to
the date of termination, but previously unpaid.
(d) Continuation of health care benefits for Executive and his dependents
for three (3) years after the date of termination or until Executive receives
substantially the same health care benefits from another employer, whichever
occurs first.
(e) Full vesting of all stock options, restricted stock and performance
shares.
9. Gross-Up Payment for Golden Parachute Taxes
(a) If it is determined that any payment by the Company, to or for the
benefit of Executive under this Agreement or otherwise, would be subject to the
federal excise taxes imposed under Section 4999 of the Code, the Company will
make an additional payment to Executive (the "Gross-Up Payment") in an amount
sufficient to cover (1) any golden parachute excise tax payable by Executive,
(2) all taxes on the Gross-Up Payment, and (3) all interest and/or penalties
imposed with respect to such taxes.
(b) As a result of the uncertainty in the application of Section 280G and
Section 4999 of the Code, it is possible that the Company will make a payment
(including a Gross-Up Payment) under Item 9(a) that should not have been made
(an "Overpayment") or that the Company will fail to make a payment (including a
Gross-Up Payment) under Item 9(a) that should have been made (an
"Underpayment"). If it is determined that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Executive which
he shall repay to the Company, together with interest at the applicable federal
rate provided for in section 7872(f)(2)(A) of the Code. If it is determined that
an Underpayment has occurred, such Underpayment shall promptly be paid by the
Company to Executive, together with interest at the applicable federal rate
provided for in section 7872(f)(2)(A) of the Code. The Company and Executive
agree to give each other prompt written notice of any information or taxing
authority inquiry that could reasonably result in the determination that an
Overpayment or Underpayment has been made.
June 11, 1999
Page 6
10. No Duty to Mitigate
After a termination of employment, Executive will not be obligated to
mitigate his damages by seeking other comparable employment, and any severance
benefits payable to Executive will not be subject to reduction for any
compensation received from other employment.
11. Termination by Executive or the Company
Executive may, with at least thirty (30) days' prior written notice,
voluntarily terminate this Agreement without liability at any time without Good
Reason. The Company may, with at least thirty (30) days' prior written notice,
terminate this Agreement at any time without Cause, subject to Item 8 above. The
Company may terminate this Agreement without liability at any time for Cause.
12. Death or Disability
This Agreement and Executive's employment relationship with the Company
shall immediately terminate upon Executive's death or, at the election of
Executive or Company, upon disability which precludes Executive from performing
his usual duties for the Company for a period in excess of ninety (90)
consecutive days or for a period in excess of ninety (90) days within any
consecutive 12-month period. The benefits to be provided Executive in connection
with such termination will be con-sistent with the policies of the Company for
other senior Executives of the Company.
13. Fees and Expenses
The Company will pay all reasonable professional fees and related expenses
incurred by Executive in connection with the negotiation and preparation of this
Agreement up to a maximum amount of $50,000. In addition, the Company will pay
all reasonable professional fees and related expenses incurred by Executive each
year in connection with personal financial planning up to a maximum of $15,000
per calendar year.
14. Relocation
The Company will pay all costs of relocation of Executive and his family to
Washington state in accordance with the Company's relocation policy supplemented
as follows:
June 11, 1999
Page 7
(a) The Company will reimburse Executive for reasonable temporary living
expenses for Executive and his family in the Seattle metropolitan area for a
period not to exceed eighteen (18) months from the date hereof;
(b) The Company will reimburse Executive for reasonable temporary
commuting expenses for Executive and his family between the Chicago metropolitan
area and the Seattle metropolitan area for a period not to exceed eighteen (18)
months from the date hereof;
(c) The Company will make available to Executive the opportunity to sell
his present primary residence through a relocation firm or real estate agent
mutually acceptable to Executive and the Company; and
(d) All relocation payments will be "grossed-up" for applicable taxes.
15. Binding of Successors
The Company will be required to have any successor to all or substantially
all of its business and/or assets expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
16. Nonsolicitation
During employment and the period during which Executive is entitled to
salary continuation under Item 8(a), Executive shall not, directly or
indirectly, recruit, solicit or induce any employee, advisor, consultant,
customer or business partner of the Company to terminate such party's
relationship with the Company or to engage in activities competitive with the
Company.
17. Taxes
The Company may deduct and withhold from any payments to be made to
Executive hereunder any amounts required to be deducted and withheld by the
Company under the provisions of any statute, law, regulation or ordinance now or
hereafter enacted. Executive will work reasonably with the Company to structure
any salary, bonus or other compensation in such a fashion to qualify for tax
deductibility under Section 162(m) of the Internal Revenue Code while preserving
the economic benefit intended to be received by Executive.
June 11, 1999
Page 8
18. Indemnification
Except to the extent inconsistent with the Company's Certification of
Incorporation or Bylaws, the Company will indemnify and hold harmless Executive
to the fullest extent permitted by law with respect to Executive's service as an
officer and director of the Company.
19. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Washington.
20. Entire Agreement
This Agreement sets forth the entire agreement and understanding between
Executive and the Company and supersedes and cancels any prior understandings,
agreements or representations by or between the parties, written or oral. This
Agreement may not be amended, modified, changed or discharged in any respect
except as agreed in writing signed by the parties.
21. No Conflict
Executive represents and warrants that this Agreement and his performance
hereunder does not and will not breach or conflict with any agreement to which
Executive is or becomes a party.
22. Successors and Assigns
The services and duties to be performed by Executive hereunder are personal
and may not be assigned. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns and Executive, his heirs and
representatives.
23. Waiver
Failure by either party to insist upon strict adherence to any one or more
of the provisions of this Agreement on one or more occasions shall not be
construed as a waiver, nor shall it deprive that party of the right to require
strict compliance thereafter.
June 11, 1999
Page 9
24. Severability
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law. If any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or the interpretation of
this Agreement in any other jurisdiction.
* * *
We are pleased to have you joining the Company. If the foregoing is
acceptable to you, please sign the enclosed copy of this letter and return it to
me.
Very truly yours,
ICOS CORPORATION
By /s/ Xxxxxx X. Xxxxxxxx
-------------------------------------------
Xxxxxx X. Xxxxxxxx, Chairman of
the Board, Chief Executive Officer
and President
Agreed and Accepted:
/s/ Xxxx X. Xxxxx
-------------------------------
Xxxx X. Xxxxx
Dated: June 11 , 1999
-------------------
June 11, 1999
Page 10
Exhibit A
"Cause" means: Executive has (a) been convicted of, or pleaded guilty or
nolo contendere to, a felony involving theft, moral turpitude or fraud against
the Company or under federal or state securities laws, or (b) engaged in conduct
that constitutes willful gross neglect or willful gross misconduct resulting, in
either case, in material adverse effect upon the business or affairs of the
Company.
"Good Reason" means: (i) the assignment to Executive of any duties
inconsistent in any respect with Executive's position, including status,
offices, titles and reporting relationships, authority, duties or
responsibilities as contemplated by this Agreement, or any other action by the
Company which results in a significant diminution in such position, authority,
duties or responsibilities, excluding any isolated, immaterial and inadvertent
action not taken in bad faith and which is remedied by the Company promptly
after receipt of a notice thereof given by Executive; (ii) any failure by the
Company to provide compensation and benefits to Executive as described in this
Agreement, other than an isolated, immaterial and inadvertent failure not taken
in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by Executive; (iii) failure of the Company to obtain the
assumption in writing of its obligations under this Agreement by any successor
to all or substantially all of the assets of the Company within fifteen (15)
calendar days after a merger, consolidation, sale or similar transaction; and
(iv) any other material breach by the Company of its obligations to Executive
under this Agreement.
